The last quarter of 2018 has seen a significant shift in housing policy, with the Letwin Review’s final report and Homes England’s five-year strategy signalling an important change of focus for future housing delivery.
Both Letwin and Homes England’s papers contain much that the development industry can get behind, from unlocking and enabling land through to infrastructure investment and removing obstacles for smaller housebuilders to play a larger role in delivery.
But there are also things that will ruffle feathers, including proposals to cap residual land values for large sites. Here, in particular, a more nuanced conversation needs to be had to ensure this approach results in more new homes and drives diversity of housing tenures, without discouraging landowners from putting forward their land for development.
The main change of direction, however, comes around who is best placed to deliver new homes: the private or the public sector. Letwin proposes that local authorities take on a master developer role, but many lack the skills and resource to do so. The private sector, on the other hand, is already deploying this model and is well placed to plug the gap.
We should not underestimate what a departure Letwin’s report is for a Conservative government, especially its emphasis on local authority delivery. For the first time in decades, the proposed use of local development corporations or infrastructure development companies challenges accepted wisdom around who should take the lead in unlocking sites and driving development.
Inevitably, this is not as straightforward as it seems. We should welcome local authorities taking a more direct approach, but right now few have the resources and expertise to perform the master developer role required for local development corporations and infrastructure development companies to be effective.
Over time, skills and experience will build within local authority teams, but in the interim we cannot afford to lose momentum on housing delivery
By pooling local authorities’ and developers’ complementary skills, we will be in a much stronger position to reach the target of 300,000 new homes a year.
In contrast to local authorities, private developers have been fulfilling the master developer role for a number of years – with positive results. Rather than seeking to reinvent the wheel by shifting this burden of responsibility, local authorities should work with developers, drawing on their knowledge and funding to build capacity in the public sector…
The master developer model works because it combines private funding and development expertise with councils’ detailed knowledge of what communities want and need, both now and in the future. It allows partners to build strong ties with existing communities so that they benefit from associated infrastructure and amenity improvements. Ultimately, this approach aligns with the principles of Letwin and Homes England’s strategy, but recognises that meeting their ambitions doesn’t have to rely on local authorities taking sole responsibility for delivery.
Reaching the government’s annual homes target is no easy task and Letwin is right to call for a change in direction.
However, the public sector cannot realistically take on a master developer role in the short term. In comparison, private developers are already adept at doing this, although we acknowledge that it is not always the norm for them to follow this model.
This is a very important point. You should not underestimate what cultural shift needed for local authorities to shift toward positive delivery of large sites. Current local governments skills and processes are base around regulation, written policy, risk management and protecting local political consequences from negative publicity on controversial issues. They are not based on running PMOs, design management, proactive investment and cash-flow management . Often whole generation of senior local government officers have not built or designed anything and capital projects are often designed and managed through frameworks agreements. Those skilled at writing local plans are often not skilled in disciplines necessary for masterplaning and delivery of large scale communities. It also requires a different approach, more interdisciplinary, commercially aware from the outset and more geared to interface management and management of design intent. Mention design intent or interface management to 99% of English planners, at whatever level, you will get eyes glazed over.
But we shouldn’t expect either the private sector to necessarily have these skills. Private sector led consortium’s are rarely master developers. The normal route is land promotion by land promoters and then sale to property developers. Something as simple a new road to access a large site and the whole chain breaks. Many large sites such as North of Horsham to take one example had laid fallow for a decade or more because of this gap in the way English Planning works. Of course areas with development corporations have fared better. For example South and West of Bedford the former local delivery body pieced together land from 25 landowners to secure the bypass opening up several large sites. That was abolished and now Bedford has discounted a site to the South of Bedford in Marsden Vale for 6,000 because land assembly, reclamation and building the local distributor road was just too hard for the local planing authority (i suspect a tactical measure just to submit before the NPPF deadline, it will come back as part of the AECOM Arc vision report).
In terms of the appropriate role of the public and private sector a distinction needs to be made between the different phases of delivery and planning and the extent to which a coordinated approach exists between existing landowners. In those cases where landowners have not come up with a framework to fund the masterplanning and division of costs and benefits from enabling infrastructure and final plots sales the public sector will need to take a lead in masterplanning and site subdivision. In many cases local authorities will need support from private sector design and engineering companies, as well as Homes England.
When it comes to infrastructure delivery, site preparation and land sales local development corporations are widely recognised as a good model and it is likely that they will mostly recruit from the private sector. There seems little case from this to be led by the private sector as the development corporations can operate framework agreements with the large engineering and property firms as they see fit. With economies of scale many landowners and/or housebuillders who purchase large subdivided plots may see benefit on coordinating infrastructure and constriction contracts formally or informally setting up ‘master developer’ arrangements.
Overall the situation will be complex with only a small number of major property companies having strategic landownings, scale and funding to enable them to operate as master developer on large strategic sites. In many cases Homes England will have to take a risk assessment about where the key gaps and risks lie on strategic sites and work with local authorities and landowners to put in place bespoke arrangements for masterplanning, and master development.
What has passed I think is the past assumption that the public sector is expected to only capture a small proportion of land value uplift and the primary risk and rewards for large site lie only withe landowners. We are likley to see shift to the model common on the continent where housebuilders operate more like utility operators rather than land speculators, with lower but shorter and less risky returns.